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Wonkbook: Everything you need to know about the fiscal cliff deal

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This is a special edition of Wonkbook for the New Year's Eve "fiscal cliff" deal. 

Suzy Khimm's summary of the fiscal cliff deal:

— Tax rates will permanently rise to Clinton-era levels for families with income above $450,000 and individuals above $400,000. All income below the threshold will permanently be taxed at Bush-era rates.

— The tax on capital gains and dividends will be permanently set at 20 percent for those with income above the $450,000/$400,000 threshold. It will remain at 15 percent for everyone else. (Clinton-era rates were 20 percent for capital gains and taxed dividends as ordinary income, with a top rate of 39.6 percent.)

— The estate tax will be set at 40 percent for those at the $450,000/$400,000 threshold, with a $5 million exemption. That threshold will be indexed to inflation, as a concession to Republicans and some Democrats in rural areas like Sen. Max Baucus (D-Mt.).

— The sequester will be delayed for two months. Half of the delay will be offset by discretionary cuts, split between defense and non-defense. The other half will be offset by revenue raised by the voluntary transfer of traditional IRAs to Roth IRAs, which would tax retirement savings when they’re moved over.

— The pay freeze on members of Congress, which Obama had lifted this week, will be re-imposed.

— The 2009 expansion of tax breaks for low-income Americans: the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit will be extended for five years.

— The Alternative Minimum Tax will be permanently patched to avoid raising taxes on the middle-class.

— The deal will not address the debt-ceiling, and the payroll tax holiday will be allowed to expire.

— Two limits on tax exemptions and deductions for higher-income Americans will be reimposed: Personal Exemption Phaseout (PEP) will be set at $250,000 and the itemized deduction limitation (Pease) kicks in at $300,000.

—The full package of temporary business tax breaks — benefiting everything from R&D and wind energy to race-car track owners — will be extended for another year.

— Scheduled cuts to doctors under Medicare would be avoided for a year through spending cuts that haven’t been specified.

— Federal unemployment insurance will be extended for another year, benefiting those unemployed for longer than 26 weeks. This $30 billion provision won’t be offset.

— A nine-month farm bill fix will be attached to the deal, Sen. Debbie Stabenow told reporters, averting the newly dubbed milk cliff.

Wonkbook's Number of the Day: 89. That's the number of senators that voted in favor of the fiscal cliff deal. Only 9 voted against. Opposing the legislation were Democratic Senators Tom Carper (D-DE), Tom Harkin (D-IA), and Michael Bennet (D-CO) along with Republican Senators Mike Lee (R-UT), Richard Shelby (D-AL), Rand Paul (R-KY), Chuck Grassley (R-IA), and Marco Rubio (R-FL). The House is expected to vote on the bill in the next few days.

Wonkblog's Graphs of the Day: Tuesday’s tax increase is the biggest in decades, and Who would foot the higher 2013 tax bill, in one chart.

Top story: Everything you need to know about the fiscal cliff deal

We have a deal. "President Obama and Senate leaders struck a bipartisan agreement late Monday to let income taxes rise sharply for the first time in two decades, fulfilling Obama’s promise to raise taxes on the rich and avoiding the worst effects of the 'fiscal cliff.'…As Biden rushed to the Capitol to brief Senate Democrats on the deal, Majority Leader Harry M. Reid (D-Nev.) laid plans for a vote shortly after midnight, when taxes were set to rise for virtually every American…Upon Senate ­passage, the measure would go to the House, where Speaker John A. Boehner (R-Ohio) pledged to bring it to a vote in the coming days." Lori Montgomery and Paul Kane in The Washington Post.

And it passed. "The Senate approved a bipartisan agreement early Tuesday morning to let income taxes rise sharply for the first time in two decades, fulfilling President Obama’s promise to raise taxes on the rich and avoiding the worst effects of the “fiscal cliff.” The agreement, brokered by Vice President Biden and Senate Minority Leader Mitch McConnell (R-Ky.), passed 89 to 8 in a highly unusual New Year’s morning vote. It now heads to the House, where leaders have not guaranteed passage but top officials believe it could win passage in the next few days." Lori Montgomery and Paul Kane in the Washington Post.

Read: The full text of the Senate bill.

Five facts about the Biden-McConnell deal. "The working poor would benefit significantly from an extension of tax breaks for low-income families: The proposed deal includes a five-year extension of tax credits that Obama had expanded in the 2009 stimulus: The Earned Income Tax Credit was expanded to help more working poor, particularly those with big families; the Child Tax Credit was expanded to help the poorest Americans; and a more generous tax credit was given to families for college tuition." Suzy Khimm in The Washington Post.

@BobCusack: Conventional wisdom post election of Sen. McConnell voting no on deal was dead wrong.

After a ‘fiscal cliff’ deal, what next?. "Assuming the deal is approved, it will nevertheless give way to a nearly continuous series of fights that will consume the first part of the year, even as President Obama might hope to shift Congress’s attention to immigration reform and gun control." Rosalind S. Helderman in The Washington Post.

Read: President Obama’s Dec. 31 remarks on ‘fiscal cliff’ talks (Full transcript).

How much will your taxes change? "For millions of wage earners, the most immediate effect would be the lapse of a two-percentage-point payroll-tax cut that was part of a deal President Barack Obama struck with Republicans late in 2010. It lowered to 4.2% from 6.2% the employee portion of the Social Security tax, allowing workers to keep more take-home pay. For an individual earning the maximum 2013 cap of $113,700 or more, the increase would be nearly $200 per month. Overall, the expiration of this stimulus would cost working Americans $125 billion a year." Laura Saunders in The Wall Street Journal.

@Reddy: When the House sees CBO take on what this deal does to the deficit, the reaction will be spectacular. Permanent AMT fix/tax cuts = trillions

Winners and losers in the fiscal cliff deal. "Biden’s entrance into the cliff negotiations over the weekend -- after a personal plea from Senate Republican Leader Mitch McConnell -- seemed to serve as a sort of oiling of locked Congressional gears. The press in the wake of the deal (and even in the runup to the final agreement) will focus on the idea of Biden as the closer, the guy who got the debt ceiling and fiscal cliff deals done for the White House." Chris Cillizza in The Washington Post.

@elwasson: Farm bill is in fiscal deal: one year 2008 extension without dairy security act

How Biden rode to the rescue. "The late entry of Mr. Biden to the tax-and-spending talks that have consumed the capital over the last two months recalls his role in the debt crisis of 2011 and once again seems to have been critical toward cutting through the deadlock…As soon as the talks boiled down to Mr. Biden and Mr. McConnell, it became a relatively short path to a tentative agreement on taxes. The two talked late into the night on Sunday, with their last call coming around 12:45 a.m. Mr. Biden remained at the White House along with Mr. Obama until 2 a.m. before returning to the vice presidential residence for a little sleep. Mr. Biden and Mr. McConnell were back on the phone at 6:30 a.m. on Monday, and by the afternoon Mr. Obama and Mr. McConnell were both reporting a near-deal." Peter Baker in The New York Times.

@TheStalwart: But seriously, what is the deal with the night-desk at the CBO? Are there just always folks there on call?

The Biden-McConnell relationship, and how it counted in the fiscal cliff deal. "In the end, it came down to two 70-year-old men, talking on the phone. They are not the most powerful men in Washington: Each, in his own way, is a second fiddle. Joseph R. Biden Jr. is vice president. Mitch McConnell (R-Ky.) is the Senate minority leader, in charge only of the senators who are not in charge. But these two men -- rivals, colleagues and wary friends for almost 28 years -- were the ones who finally struck a deal to end the 'fiscal cliff' crisis. The New Year’s Eve agreement between Biden and McConnell provided a glimpse at the ways that personality quirks and one-to-one relationships can still change the course of Washington politics." David A. Fahrenthold and Ed O’Keefe in The Washington Post.

@JohnQuiggin: Unlike everyone else, I see fiscal deal as big win for Obama. Predict Repubs will split over this, then cave on debt ceiling.

How the deficit hawks lost on the fiscal cliff. "There are two facts you should know about the 'fiscal cliff' deal: One, it won’t reduce the deficit by much. Two, it won’t avert the fiscal cliff. Whatever deal gets worked out this week will be very narrow in scope, simply delaying major parts of the fiscal cliff and doing little to reduce the deficit." Suzy Khimm in The Washington Post.

Explainer: The ‘fiscal cliff’s’ Most Valuable Republicans.

No grand deal. A legislative quick-fix. "The confusing struggle to head off a national fiscal crisis has made one thing crystal clear: The era of the Big Deal is over…The list of unrealized goals from Mr. Obama and Mr. Boehner’s last attempt at a grand bargain two weeks ago are breathtaking in their number, particularly when compared with the probable outcome of these final Congressional negotiations. Ambitious plans to overhaul the individual tax code, tackle corporate rates, revamp the Medicare program and possibly consider changes in Social Security appear to have given way mainly to a tax increase for big earners." Jennifer Steinhauer in The New York Times.

@robertcostaNRO: Lots of pressure on Senate to come through w/ 70ish, not 60ish votes on deal, per top Repub senators. 70ish gives Boehner lift in final push

Obama’s wrong: This ‘cliff’ deal still raises taxes on the middle class. "Taxes will rise on the middle class even if this deal passes, because it doesn’t include an extension of the payroll tax holiday. That means that the paychecks for more than 160 million Americans will be 2 percent smaller starting in January, as the payroll tax will jump from 4.2 percent to 6.2 percent. And a huge number of those hit will be middle class or working poor." Suzy Khimm in The Washington Post.

@robertcostaNRO: I hear Boehner is unhappy with the deal. Not sure he can sell. Not sure how conf. will respond, per Senate sources familiar w/ the talks.

We just hit the debt ceiling. "On top of everything else, the United States officially hits its debt ceiling today, starting a countdown clock that ends in a cash management crisis in a matter of weeks…Right now, the Treasury is undertaking 'extraordinary measures' to give the government enough breathing room to pay all of its bills. But such measures buy Washington only so much time. In February or March, the Treasury secretary would need to decide which payments to delay or default on." Annie Lowrey in The New York Times.

@TPCarney: I'm looking for a decent conservative case to vote against this deal. Haven't found it.

Why the White House thinks it's winning. "Consider the ongoing fiscal cliff negotiations from the White House’s perspective…It raises taxes by $600 billion over 10 years, secures important Democratic priorities like unemployment insurance and the stimulus tax credits, and doesn’t include any spending cuts of note…It would be going too far to say White House officials are thrilled with this package. But it looks pretty good to them. As they see it, it sets up a three-part deficit reduction process." Ezra Klein in The Washington Post.

@amacker: The muni bond tax exemption, eyed by Obama and House Rs, isn't changed by Biden-McConnell plan, a victory for states and localities.

Why Republicans think they’re winning. "Consider the ongoing 'fiscal cliff' negotiations from the Republican Party’s perspective. Not the revanchist conservatives who never believed they’d need to compromise, but the realists who knew, when they lost the election, that compromise was inevitable…The question for Republicans has always been how to get to the debt ceiling while giving up the minimum in tax increases. Many of them figured that they’d at least have to give on the Bush tax cuts for income over $250,000…All this raises the tantalizing prospect for Republicans that they could end these negotiations having given up less tax revenue than they ever thought possible -- less tax revenue than Boehner offered Obama, even -- but still getting their entitlement cuts." Ezra Klein in The Washington Post.

@mattyglesias: Has the fiscal cliff recession started yet? I feel like GDP’s been super-low for the past six minutes.

Here’s what Republicans really hated about Obama’s news conference. "President Obama’s cheerful, mocking statement enraged Republicans. But the bigger problem is he said something Republican leaders have been trying to hide from their members. Obama said, clearly, that if the GOP wants more spending cuts later, they’re going to need to hand over more taxes, too. In fact, he said it repeatedly." Ezra Klein in The Washington Post.

SEIB: Why reaching deals is hard. "There are multiple reasons that even the seemingly easy still is hard in Washington right now. The problems start, of course, with the basic polarization of not just Congress but the country. America is right now in an unusual political state, in which the two parties are very evenly divided in power, but far apart ideologically." Gerald F. Seib in The Wall Street Journal.

COHN: The fiscal cliff's biggest winner? George W. Bush. "It’s as if President George W. Bush finally won—the tax cuts he’d always wanted would be staying on the books indefinitely, 'starving the [government] beast' of the resources it needs to survive. But that analysis is also too simplistic. For one thing, not all of the Bush tax cuts would be staying on the books under this deal. Taxes on higher incomes would return to their Clinton-era levels…This deal gives Bush a victory, yes. But it's far from a total one." Jonathan Cohn in The New Republic.

BROOKS: Fiscal flop. "Obviously, the fiscal cliff negotiations were not going to lead toward the deep structural reforms that will eventually be needed. But they could have begun the reform process…But the proposal is not a balance of taxes and spending cuts. It doesn’t involve a single hard decision. It does little to control spending. It abandons all of the entitlement reform ideas that have been thrown around. It locks in low tax rates on families making less than around $450,000; it is simply impossible to avert catastrophe unless tax increases go below that line. Far from laying the groundwork for future cooperation, it sentences the country to another few years of budget trench warfare." David Brooks in The New York Times.

BERNSTEIN: A deal liberals can live with, probably. "It looks as if we’re going to get a two-part fiscal cliff deal: Congress will finish voting on part one tomorrow or Wednesday, and part two at some point in the near future, although it’s possible they’ll wind up getting merged. It’s important to get all the details on these things, but based on what is being reported so far, it appears to be a deal that liberals should be able to live with -- pending part two…" Jonathan Bernstein in The Washington Post.

SAMUELSON: The fiscal cliff and leadership failure. "Only the president can pose these questions in a way that starts a national conversation over the choices to be made, but doing so requires the president to tell people things they don’t want to hear. That’s his job: to help Americans face unavoidable, if unpleasant, realities. Barack Obama has refused to play this role. Instead, he has cast the long-term budget problem as a question of whether the richest 1 percent or 2 percent of the population should pay more in taxes." Robert J. Samuelson in The Washington Post.

Music recommendations interlude: U2, "Pride (In the Name of Love)," 1984.

Top op-eds

PONNURU: My predictions for 2013. "It will also be a year of unexpected setbacks for President Barack Obama’s health-care law…Predictions: Premiums will go up, especially for young people. The Washington Post’s recent report that 'Obamacare exchanges will open for business' on Oct. 1 will be proved false when Health and Human Services Secretary Kathleen Sebelius admits the federal government won’t be ready by then. The Obama administration will propose further delaying the law." Ramesh Ponnuru in Bloomberg.

SUNSTEIN: End of the world, and I feel fine. "Most of us acknowledge that some of our most cherished beliefs are based on faith, not facts. Even so, it takes a lot to dislodge those beliefs. When we are confronted by contrary evidence, we may dig in even more deeply. Consider a cautionary tale, exotic to be sure, but helping to explain why evidence-challenged thinking persists in a lot of areas, including politics and business."Cass R. Sunstein in Bloomberg.

Quotations interlude: The 10 best of 2012.

The fiscal cliff and the economy

The deal may mean slower growth. "The biggest hit to 2013 growth appears likely to come from the payroll-tax holiday's expiration on Monday. The deal reached by the White House and Senate Republicans wouldn't extend this tax break." Sudeep Reddy in The Wall Street Journal.

Markets didn't sweat the cliff. They were basically right, it seems. "The financial markets are proving to be surprisingly indifferent to the last-ditch negotiations underway Monday to avert an austerity crisis. The stock market was up 0.2 percent at 11:00 a.m. as measured by the Standard & Poor’s 500 index. A key measure of expected market volatility known as the Vix index was actually down slightly Monday morning, falling 2.4 percent after a steep rise on Friday." Neil Irwin in The Washington Post.

Despite turmoil, markets did well in 2012. "What stands out is how well financial stocks and consumer discretionary stocks did during 2012. The latter stocks are things purchased by consumers that are likely to do better when the economy is improving. In the United States, the two best such stocks in the S.& P. 500 were PulteGroup, a homebuilder, and Whirlpool, an appliance maker." Floyd Norris in The New York Times.

More charts interlude: America in 2012.

Et Cetera

A full recovery is expected for Hillary Clinton. Helene Cooper and Denise Grady in The New York Times.

AIG to America: Thanks, guys!. Neil Irwin in The Washington Post.

Auto sales saved the economy in 2012. Brad Plumer in The Washington Post.

The Fed and its economic models. Jon Hilsenrath in The Wall Street Journal.

Congress’s magic words. Dan Hopkins in The Washington Post.

Important decision for the Affordable Care Act: Employers must offer care, affordable or unaffordable. Robert Pear in The New York Times.

Got tips, additions, or comments? E-mail me.

Wonkbook is produced with help from Amrita Jayakumar.